About Piponomics

Economics plays a huge role in the foreign exchange market. I enjoy looking at economic trends and trying to see how it may affect currencies, and life in general. I will post my thoughts and observations here. I'm throwing macroeconomics, forex trading, pop culture, and everyday life into a pot and hopefully the final product are lessons about the FX market that's easy to understand.

3 Main Takeaways from the RBNZ Statement

Even though several central banks all over the world are loosening their monetary policy in order to stimulate growth, the Reserve Bank of New Zealand (RBNZ) recently revealed that they’re in no rush to make any changes. With the new RBNZ head Graeme Wheeler at the helm, New Zealand’s central bank kept rates on hold at 2.50% for now. What else did we learn from the recent RBNZ rate decision?

1. New Zealand’s economy is staying resilient.

Just like its fellow commodity-dependent economy, Canada, New Zealand seems to be staying resilient in the midst of the ongoing global economic downturn. In his very first rate statement, Graeme Wheeler pointed out that external risks stemming from the euro zone debt crisis and U.S. fiscal troubles are slowly diminishing.

He also remarked that economic activity in New Zealand continues to expand at a modest pace, which is way more than what most of the other major economies can hope for. Among the factors keeping their economy afloat are the gains in housing and construction, which were spurred by rebuilding efforts in Canterbury and Auckland.

2. Wheeler ain’t too hawkish nor too dovish!

It appears that Wheeler ain’t too keen to make any huge surprises at the start of his stint RBNZ Governor. Several market watchers noted that the new RBNZ head seems to be testing the waters for now and is in no rush to lower interest rates.

Analysts also seemed to appreciate how Wheeler was able to provide a very balanced assessment of New Zealand’s economy, as he clearly outlined the positive and negative effects of recent Kiwi strength on overall growth.

He noted that, on the one hand, a strong New Zealand dollar could hurt their exports as it makes their products relatively more expensive internationally. On the other hand, he also mentioned that it encourages import substitution, which basically encourages locals to support domestic industries. Eventually, this could result in increased production, hiring, and growth.

3. The RBNZ is watching inflation very closely.

Another thing worth noting about the recent RBNZ decision was how policymakers were focusing a lot on inflation. They pointed out that New Zealand’s annual CPI of 0.8% is at extremely low levels, but that they expect it to climb back to 2% or at least within their target range later on.

For now, Wheeler emphasized that they will continue to closely monitor inflation-related data, such as the producer price index or inflation expectation reports, over the next few months.

Although we didn’t hear anything surprising from the RBNZ, I must admit that it was a bit reassuring to know that not all major economies are undergoing a terrible slowdown. How about you? What did you think of Graeme Wheeler’s very first rate statement? Let us know by voting through the poll below!